Small Enterprise Is Leader In Medical-Devices

When Kinetic Medical was set up in Shanghai in 2005, outfits like America’s MedtronicMedtronic dominated China’s market for medical devices. Jay Qin thought he saw an opening.

“While multinationals have their own expert team overseas for product evaluation or clinical trials, we invite opinion-leading doctors from domestic hospitals for such input, and this makes them our loyal customers,” says Kinetic’s cofounder and chairman, now 49.

Jay Qin maintains that his products are as good as Medtronic’s, at a much lower price. (credit: Qilai Shen For Forbes)

The result, after a 2012 domestic IPO, is a company with a roughly $810 million market capitalization on the back of only $20 million in sales and $10 million in profits last year. Investors love the prospects for Kinetic’s signature product for treating, with minimally invasive surgery, spinal compression fractures caused by osteoporosis. Called percutaneous kyphoplasty (PKP), it’s well suited to an aging society, and Kinetic enjoys a nearly 50% market share in China two years after introduction.

Born Qin Jie, he earned a degree from Fudan University, then in 1991 a master’s degree in biochemical engineering from Ohio State. Acquiring U.S. citizenship, he spent 11 years working for multinationals, including Medtronic, before cofounding his first device firm in Silicon Valley in 2002, to treat tumors.

As Qin tells it, the tumor project brought him back to China, but within three years he teamed up with two friends to pursue the PKP prospect instead. His cofounders at Kinetic are Yuan Zheng, who had focused on marketing at a biotech firm, and Li Guangxin, a venture capitalist. (The trio won’t speak of the origin of their friendship.) “We put together $500,000 seed money from our own pockets, and the three of us make a unique and strong team,” says Qin.

Today Yuan, 51, is general manager of Kinetic, with a 10% stake held by his family, and Li, also 51, sits on the board with a 9% family stake. Qin, who holds 13%, is stronger on research and development.

Although Kinetic can sell its device at two-thirds the price charged by foreign rivals, it touts its technology as second to none. “Many Chinese companies in this sector would just copy the exterior design by multinationals to make similar-looking products, but we have the know-how,” Qin says.

In China another edge is a broader approach to the market. Multinationals usually pay attention only to the most prominent hospitals in large cities, but Kinetic has been selling to lesser hospitals in smaller cities across China from the beginning.

Also, whereas medical equipment abroad is usually sold directly to hospitals, in China the sales go through distributors. “Some multinationals are still trying direct sales in China, which is an impossible approach,” Qin avers. “Kinetic hires distributors to establish connections with hospitals long before the product is launched.” The company has a good 200 distributors selling to 600 hospitals in all mainland provinces except Tibet.

What’s more, all of Kinetic’s 150 headquarters staff take field trips to hospitals to see how products are used in patient treatment. “Our employees come back with a sense of accomplishment and more ?committed–you’d feel this way when you see you are changing lives, and that’s why I got into medicine in the first place,” says Qin.

But “the competition will only get fiercer,” he knows, so Kinetic is buying its way into a broader product range. Last year, using its IPO haul and an $11 million loan from Bank of ChinaBank of China, it took a 30% stake in Essen Technology of Beijing, whose minimally invasive equipment targets cardiovascular diseases. Kinetic is planning to acquire the remaining 70% in 2014.

Whereas in the West devices are as big a component of medicine as drugs, in China they are only a fifth the size, Qin says–and that offers opportunities to close the gap.

By 2020, with 14% annualized growth China’s medical device market should reach $55 billion, second only to the U.S.’, figures Luo Ying, partner and managing director for greater China of U.S. consulting firm BCG.

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